Ag needs to get tough

By 2020, Ken Henry says, Asia’s middle class will have more than trebled in size to 1.7 ?billion people. By 2030 it will have almost doubled again, and it will account for 60 per cent of global middle class consumption. With that growth will come an increase in demand for the kind of food we produce and eat. Martin Parkinson, Henry’s successor as Treasury secretary, says the next positive shock wave from Asia will be felt by Australian agriculture. “We’re likely to see a significant increase in demand, particularly from China, for high-end agricultural products like fruit, dairy, high-grade meat and seafood,” he says. This will be a huge opportunity for farmers, investors and the economy. But to fully capitalise on a boom you have to be able to meet the demand, and ABARES says we will need a change in agricultural production to do it. First, it says, we have to reverse the slowdown in farm productivity, which for broadacre farming has been negative for the past decade. We also need to better target consumer needs in fast-growing markets, especially Asia. Reviving productivity growth will be harder than it looks. Productivity has been negative temporarily because of droughts, but there has also been a more permanent slowdown. Broadacre and dairy productivity was boosted by the major reforms of the 1980s and 1990s, including the dismantling of statutory marketing and price support schemes, labour market reforms and the phasing out of tariffs on imported agricultural products. There were also big improvements in technology, including larger, more efficient sowing and harvesting machines, and greater automation and mechanisation of dairy production. These advances, in turn, led to industry consolidation and an increase in average farm sizes. But it seems the big gains from these changes have been largely realised, and an acceleration of productivity growth will require new drivers. So where do we find them? The opposition’s Andrew Robb would suggest the northern food bowl. However, that is not on ABARES’s to-do list, possibly because the idea has already been expertly examined and rejected. The Northern Australia Land and Water Taskforce reported in 2009 that “contrary to popular belief, water resources in the north are neither unlimited, nor wasted. Equally, the potential for northern Australia to become a ‘food bowl’ is not supported by evidence.” Robb, who is heading a federal Coalition taskforce to reassess the merits of the food bowl proposal, insists that there is “a patchwork of opportunities right across the north” that, with “sensible water catchment”, could double Australia’s agricultural production. With rising global food prices, there are almost certainly development opportunities in the north that would justify their environmental and other social costs. But an election-year Coalition task force is not the mechanism to find them. What the federal opposition should promise is a Productivity Commission inquiry to re-evaluate the issue. In the absence of Robb’s economic miracle, ABARES warns productivity growth will have to come from on-farm innovation and advances in plant and animal genetics, and technologies that enable better farm management and increase energy and water efficiency. State moratoriums on the commercial release of genetically modified crops have limited private sector investment, and ABARES makes a plea for transparent and evidence-based decision-making by the states. Genetically modified food crops are being adopted overseas, including in the United States, Canada, China, Argentina and Brazil, and have the potential to transform agricultural productivity in Australia. Unfortunately, there seems to be no task force of federal politicians ready to take on that battle. ABARES also argues that reduced government spending on agricultural research and development since the 1970s has contributed to the slowdown in farm productivity growth. That decline in funding should be reversed. But there is more than the politicians can, and should, do. There is scope for further gains from farm rationalisation. The Productivity Commission states the 20 per cent of most-efficient broadacre farms accounted for nearly two-thirds of total production in 2005. The remaining 80 per cent of farms produced only 36 per cent of output. Drought should naturally force the rationalisation of the farm sector into larger, geographically diversified enterprises. However, governments have allowed drought relief to preserve economically inefficient operators. Another useful agent of change should be foreign investment. And given the need for the agricultural sector to target consumers in Asia, corporate investors from China should be particularly useful. That is not how some farmers see it, of course. But when all the emotive nonsense about Chinese investment is stripped away, their real concern seems to be that Chinese investment will excessively bid up the price of farm land and reduce the opportunity for the next generation of Australian farmers to carry on the family farms. There might be some truth in that, but it is in Australia’s interests for small farms to be replaced by larger corporate producers. If agriculture is the next big thing, Australia cannot afford to protect undersized, under-capitalised, overgrazed family farms from the economic pressures of the global food market. If anything, the federal government should increase the pressure on unprofitable farmers to get off the land, and it should demand that the states do the same. For example, grazing leases on Crown land should be put on a proper, arm’s-length commercial basis, and producers who cannot manage their leases at a profit should be pushed out, just as a retail centre owner expels unsuccessful retailers. In the case of the Crown leases in Queensland’s Upper Burdekin, the benefits of such a policy would extend beyond agriculture to tourism. According to the Productivity Commission, most of the sediments, nitrogen and phosphorous that wash into Great Barrier Reef lagoon come from cattle grazing, and a big part of the problem is overstocking by graziers who are fundamentally unviable or who have succumbed to the moral hazard of drought relief. “The Land” http://www.theland.com.au/news/agriculture/agribusiness/general-news/ag-needs-to-get-tough/2650082.aspx?storypage=0